FAQs on Residential Status
This article is a full-fledged FAQ on residential status in India for tax purposes. It gives answers to common questions almost how a person’s, company’s or entity’s residential status is decided and how it relates to their charge liabilities. Recording exact charges is imperative for all Indian citizens working abroad and inhabitants in India, and you require to know whether you are a inhabitant or a non-resident to be qualified for certain exemptions.
Q.1. What does “residential status” mean for tax purposes in India?
A.1. Residential status determines whether an individual, company or other entity is a resident or non-resident of India for tax purposes. It helps decide the scope of taxable income in India. If you are a resident, you are liable to pay tax on both Indian and foreign income. If you are a non-resident, only your Indian income is taxable.
Q.2. How is residential status determined for an individual under Section 6?
A.2. The residential status of an individual is determined based on the number of days they stay in India during a financial year. There are two main conditions:
- Essential condition: An individual is a resident if they stay in India for at least 182 days during the financial year, 60 days in the current year, and 365 days in the previous 4 years.
- Additional condition: To be ordinarily resident, an individual must have been in India for at least 2 out of the last 10 years and have stayed in India for 730 days during the previous 7 years.
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Q.3. What does “RNOR” mean?
A.3. “RNOR” stands for Resident but Not Ordinarily Resident. An individual is considered RNOR if they meet the criteria to be a resident but fail to qualify as an ordinarily resident (OR) based on the additional conditions set out under Section 6.
Q.4. Can an Indian citizen working abroad be a resident under Indian tax laws?
A.4. Yes, an Indian citizen working abroad can still be considered a resident if they meet the stay conditions specified in Section 6. Additionally, under Section 6(1A), if an individual is an Indian citizen, has taxable income in India, and is not liable to pay tax in the country they reside, they may be considered a deemed resident of India.
Q.5. What is the significance of being a “deemed resident” under Section 6(1A)?
A.5. A deemed resident is an Indian citizen who stays outside India but has income that is taxable in India. If such a person is not liable to pay tax in the country where they reside, they are treated as a resident for tax purposes in India. This ensures that their Indian income is taxed under Indian laws, even if they do not stay in India for the required days.
Q.6. Does a HUF (Hindu Unified Family) have the same private status rules as an individual?
A.6. Yes, the rules for deciding the private status of a HUF are comparable to those of a person. A HUF can be a resident, non-resident, or resident but not ordinarily resident (RNOR), depending on the number of days it has been in India and other conditions.
Q.7. How is the residential status of a company determined?
A.7. The residential status of a company is determined by its place of incorporation. If a company is incorporated in India, it is treated as a resident. If the company is incorporated outside India, it is considered a non-resident in India, irrespective of where its management or control occurs.
Q.8. What does it mean to be a Non-Resident in India?
A.8. A non-resident is an individual or entity that does not meet the conditions for being a resident under Section 6 of the Income Tax Act. Non-residents are only liable to pay tax on income earned in India, not their global income.
Q.9. Are there any exemptions to the private status rules for people working as team members?
A.9. Special arrangements apply to Indian citizens working as group individuals outside ships or airships. The period of their stay in India is excluded from the calculation of their stay to determine their residential status. This helps ensure that their tax residency is not unnecessarily affected by short stays in India while working on foreign vessels or aircraft.
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Q.10. How do tax authorities in India determine the residential status of a firm or AOP/BOI?
A.10. The residential status of firms, AOPs (Associations of Persons), and BOIs (Bodies of Individuals) is determined based on where they are controlled or managed. If they are controlled or managed from India, they are considered residents. They are considered non-residents if the control and management are located outside India.
Q.11. If an outside company works in India, does its private status depend on the area of its management?
A.11. No, the private status of a company depends exclusively on its put of consolidation, not on where it is overseen. So, an outside company consolidated outside India will be considered a non-resident if its administration is in India.
Q.12. How can I determine my residential status as an individual if I travel frequently between countries?
A.12. Count the days you spend in India during the financial year to determine your residential status. You will be considered a resident if you stay in India for at least 182 days. However, if your stay is shorter, you may be a non-resident. Also, if you meet the other conditions, you could be classified as Resident but Not Ordinarily Resident (RNOR).
Q.13. Is there any particular tax benefit for individuals who are residents but not ordinarily residents (RNOR)?
A.13. Yes, individuals classified as RNOR may benefit from certain tax exemptions. For instance, income earned outside India is taxable only if brought into India. This can provide a tax advantage for people who have foreign income.
Q.14. Can a person inhabit more than one nation for charge purposes?
A.14. Yes, a person can inhabit more than one nation for charge purposes. This is called double residency. In such cases, the tax laws of both countries might apply, and there may be provisions like Double Taxation Avoidance Agreements (DTAA) to resolve the issue and prevent the individual from being taxed twice on the same income.
Q.15. How does residential status affect my income tax filing in India?
A.15. Your residential status in India directly affects the taxable scope of income taxable. If you are a resident, you are taxed on global income(income from both India and abroad). When you are a non-resident, only income earned in India is taxable. If you are RNOR, your foreign income may only be taxable if it is brought into India.
Q.16. I am an Indian citizen working in the UAE and earning income there. Am I required to file taxes in India?
A.16. As an Indian citizen working in the UAE, you may still reside in India if you meet the required conditions (such as staying 182 days or more in India during the financial year). However, suppose your residential status is non-resident (because you stay outside India for more than 182 days). In that case, you are only liable to pay tax in India on income earned. If your income is earned outside India, you are not required to pay taxes in India on that income.
Q.17. What happens if I need to meet the resident or non-resident status criteria?
A.17. Under Section 6 of the Income Tax Act, individuals who do not meet the resident criteria will automatically be considered non-residents. However, if you qualify as a resident but must meet the conditions for being ordinarily resident, you will be regarded as Resident but Not Ordinarily Resident (RNOR). So, everyone will fall into one of the following categories: Resident, Non-Resident, or RNOR.
Q.18. How can an Indian citizen working abroad be taxed under Indian law?
A.18. An Indian citizen working abroad can still be subject to Indian tax laws, depending on their residential status. If they are a resident(meeting the conditions), they will be taxed on their global income, including income earned abroad. If they are a non-resident, only their Indian-sourced income will be taxable in India. Moreover, Indian citizens working abroad could also qualify as deemed residents if they have income taxable in India and are not subject to tax in the foreign country.
Q.19. If an individual stays in India for less than 182 days but has stayed for more than 60 days and has been in India for 365 days in the past 4 years, what is their residential status?
A.19. In this case, the individual would qualify as a Resident because they meet the essential condition of being in India for at least 60 days during the current year and 365 days in the preceding 4 years. The additional condition for being an ordinary resident would depend on whether they meet the stay requirements for the last 10 years and the previous 7 years.
Q.20. Are there any uncommon arrangements for non-residents working from India?
A.20. Yes, non-residents winning wages from India are saddled on their Indian pay. Specific exclusions or lower charge rates may apply beneath the Twofold Tax Collection Evasion Understanding (DTAA) between India and the non-resident’s nation of home. Non-residents must also record a Pay Assess Return (ITR) if their wage surpasses the essential exception restrain or the assessment is deducted at source (TDS) on their Indian pay.
Q.21. If I am classified as RNOR, will my income from outside India be taxed in India?
A.21. No, if you are a Resident but Not Ordinarily Resident (RNOR), income earned outside India is generally not taxable in India. However, if this income is brought into India, it may become taxable. The RNOR status provides some relief from being taxed on global income, as only income earned within India will be taxed.
Q.22. How does my residential status affect my eligibility for various deductions and exemptions under Indian tax laws?
A.22. The private status can influence your qualification for specific charge derivations and exceptions. For illustration, inhabitants may be qualified for exclusions such as the remote salary exception beneath areas like 10(4) (for pay earned exterior India). In any case, if you are a non-resident, certain benefits or exclusions, such as those related to house lease remittance or specific derivations, might not be accessible, or they may be accessible at diminished rates. It’s es
Q.23. Can I change my residential status during the financial year?
A.23. Your residential status can change during the financial year if you meet the stay criteria for a different status. For example, suppose you initially meet the conditions to be a non-resident but then stay in India longer during the year. In that case, you may qualify as a resident. However, once the financial year ends, your status for that year is fixed and cannot be changed retrospectively.
Q.24. Does a minor child’s private status influence their parents’ charge status?
A.24. No, the private status of a minor child is decided autonomously. The assessment status of the minor child does not influence the charge status of the guardians. In any case, if the child gains pay, it may be clubbed with the parent’s income for charge purposes, depending on the circumstance.
Q.25. Must I file a tax return in India as a non-resident?
A.25. You must file an Income Tax Return (ITR) in India if you are a non-resident and have Indian-sourced income. The return can be filed if your income exceeds the exemption limit or if tax is deducted at source (TDS) from your Indian income and you want to claim a refund.
Bottom Line:
Residential status is one of the most noteworthy angles of tax collection in India. Inhabitant Indians are burdened on worldwide pay and non-residents are saddled as it were on their wage in India. Your classification may contrast based on the number of days went through in India, overseas business, or particular circumstances as per the arrangements of the Wage Assess Act. Knowing your private status is basic to make beyond any doubt you comply with assess controls and profit the benefits of the exclusions and derivations accessible.
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